Valero Energy Corporation · NYSE:VLO
Valero Energy — Barclays CEO Energy-Power Conference 2013
63 slides from Valero Energy's conference presentation, Sep 11, 2013
Slide 1: Barclays CEO Energy-Power Conference September 11-12, 2013
Barclays CEO Energy-Power Conference September 11-12, 2013
Slide 2: Safe Harbor Statement
Safe Harbor Statement Statements contained in this presentation that state the Company's or management's expectations or predictions of the future are forward- looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 193
Slide 3: Valero Energy Overview
Valero Energy Overview World's largest independent refiner 16 refineries 2.8 million barrels per day (BPD) of throughput capacity, with average capacity of 187,000 BPD, excluding Aruba More than 7,300 branded marketing sites Nearly 1,900 sites belong to CST Brands, our former retail business that we
Slide 4: Refinery Capacities
Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Corpus Christi 325 205 20.6 Houston 160 90 15.1 Meraux 135 135 10.2 Port Arthur 310 290 14.2 St. Charles 270 190 15.9 Texas City 245 225 11.1 Three Rivers 100 95 12.4 Gulf Coast 1,545 1,
Slide 5: Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value
Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value Increase Long-term Shareholder Value Increase Long-term Shareholder Value 5
Slide 6: Key Market Trends
Key Market Trends 6 Expect dramatic growth in U.S. shale oil and Canadian oil production to provide North American crude oil cost advantage Expect shale development to drive strong growth in supply of natural gas liquids and naphtha Industry installing significant infrastructure to move crude oil to
Slide 7: U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners
U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners Resource Advantage to North American Refiners Resource Advantage to North American Refiners 7 Source: EIA, Consultants, company announcements and Valero estimates; 2013 U.S. Crude imports are YTD as of June 20
Slide 8: U.S. Gulf Coast: Main Destination for Cost-Efficient Crude Oil Pipelines
U.S. Gulf Coast: Main Destination for Cost-Efficient Crude Oil Pipelines Rapid increase in pipeline capacities to move inland North American light and heavy crude oils to the Gulf Coast Light crudes have been pricing below LLS in western (Houston, Corpus) parts of Gulf Coast Recent completion of pip
Slide 9: Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil
Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil Volumes of Cost-Advantaged Crude Oil Volumes of Cost-Advantaged Crude Oil 9 Expect Quebec refinery to benefit and become supplied by U.S. and Canadian crude in three ways: rail, ship, and pipeline Railing up to 30 MBPD of l
Slide 10: Valero's Estimate of Marginal Light Crude Oil Costs per Barrel
USEC ICE Brent + $2 Marginal price setter Valero's Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months 10 to USEC Rail $14 to $17/bbl to St. James Rail $12/bbl to Cushing Rail $9/bbl Cushing ICE Brent -$5 to -$8 to Houston Pipe $4/bbl Midland ICE Brent -$5 to -$8 to Houston Pipe
Slide 11: Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners 11 Note: Per barrel cost of 700,000 MCF/day of natural gas consumption at 90% utilization (2,529 MBPD) of Valero's capacity $1.5 billion higher pre- tax annual costs $3.1 billion higher pre-tax annual costs Due to sig
Slide 12: Global Distillates Demand Growth Yields Higher Margins
Global Distillates Demand Growth Yields Higher Margins 12 (CHART) Source: Argus, 2013 YTD through September 6, 2013 /bbl (CHART) Diesel growth rate 2x gasoline Distillates (diesel, kero, jet fuel) margins are significantly higher than gasoline due to less spare distillates production capacity Distil
Slide 13: U.S. Refining Capacity Is Globally Competitive and Taking Market Share
U.S. Refining Capacity Is Globally Competitive and Taking Market Share 13 U.S. flipped from importer to exporter on lower local demand and competitive advantages U.S. refiners in PADDs 2, 3, and 4 have higher utilization due to structural advantages of cost-advantaged crude oil and natural gas U.S.
Slide 14: Valero's Options in the Atlantic Basin
Valero's Options in the Atlantic Basin 14 14 Aruba Terminal
Slide 15: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 15 Source: Consultant and Valero estimates World Petroleum Demand Growth MMBPD Emerging markets lead in terms of global petroleum demand growth Particularly strong growth in Latin American countries and China Refining is a global b
Slide 16: World Refinery Capacity Growth
(CHART) World Refinery Capacity Growth Estimated Net Global Refinery Additions 16 MMBPD Source: Consultant and Valero estimates; Net Global Refinery Additions = New Capacity + Restarts- Closures Expect significant new global refining additions in the next several years Mainly new plants in Asia and
Slide 17: Valero's 2013 and 2014 Capital Spending Focus on Growth Investments
Valero's 2013 and 2014 Capital Spending Focus on Growth Investments 17 "Stay- in- business" spending 2013 spending includes approximate $60 million for retail (CST Brands) through April Total $3,000 Total $2,850
Slide 18: Valero's 2013 and 2014 Growth Investments Focus on Logistics and Crude
(CHART) Valero's 2013 and 2014 Growth Investments Focus on Logistics and Crude 18 Growth investments consist mainly of logistics and crude fractionation, which are 50% of 2013 and 67% of 2014 total growth spending (CHART) 2013 Growth Investments 2014 Growth Investments Total estimate $1.335 billion
Slide 19: Logistics Growth Investments
Logistics Growth Investments Strategy Increase access to cost-advantaged crudes for refineries Increase capability to export more products and crude Investments Pipelines, rail cars, rail unloading, barges, ships, docks, tanks Purchased 5,320 rail cars for delivery 4Q12 through 2Q15 Crude rail unloa
Slide 20: Expect to Unlock Value via New MLP
Expect to Unlock Value via New MLP Evaluating formation of a publicly traded MLP for Valero's logistics assets Valero completely divested its first MLP in 2006, now called NuStar Energy Since that separation, Valero has built a portfolio of logistics assets Seeking value creation through higher valu
Slide 21: Hydrocracking Growth Investments
Strategy Designed to benefit from our outlook of: High crude and low natural gas prices Strong global distillate demand growth and margins Growth Investments 57 MBPD hydrocracker at Port Arthur refinery performing well Hydrocracking Growth Investments 21 New 60 MBPD hydrocracker at St. Charles refin
Slide 22: Investments to Process More Domestic Light Crude Oil
Investments to Process More Domestic Light Crude Oil Strategy Increase processing of North American cost- advantaged crude oil versus feedstock purchases Use underutilized conversion capacity Sites selected due to configuration of oversized conversion capacity relative to crude capacity; and bottoms
Slide 23: Upgrading Natural Gas to Methanol
Upgrading Natural Gas to Methanol Strategy Bolt-on approach leverages existing assets Gas-to-liquids upgrading U.S. is a growing methanol market and represents about 10% of the global market On average, the U.S. imported about 89% of its supply (about 5 million tonnes per year) Southern Louisiana is
Slide 24: NGLs and Naphtha Upgrading Presents a Valuable Opportunity
(CHART) NGLs and Naphtha Upgrading Presents a Valuable Opportunity Strategy Consistent strategy - low-cost feedstock (feedstock advantage) and bolt-on/synergistic project Expect supply of NGLs plus naphtha-rich condensate to grow along with shale crude development in the U.S. and Canada Expect lengt
Slide 25: Returning More Cash to Stockholders and Managing Financial Strength
(CHART) Returning More Cash to Stockholders and Managing Financial Strength Spun off 80% of company operated retail, equivalent to about $3.50 per share of VLO Valero retained 20% of CST common stock Returning more cash to stockholders Increased quarterly dividend from $0.05 per share in 2Q11 to $0.
Slide 26: Valero Focused on Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refiner Refining industry benchmark studies show our portfolio continues to improve Seven refineries currently operating in 1st quartile for mechanical availability Meantime between pump repair at 60 months, up from low 30s 18 months ago Saw results fro
Slide 27: Update on Refinery Indicator Margins: 3Q13 QTD vs. 2Q13
Update on Refinery Indicator Margins: 3Q13 QTD vs. 2Q13 3Q13 QTD vs. 2Q13 3Q13 QTD vs. 2Q13 27 Source: Argus; 2013 year-to-date through September 6; see appendix for details on indicator definitions Gulf Coast benefiting from heavy crude discounts widening in 3Q13 Mid-Continent lower on smaller WTI
Slide 28: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Expect dramatic growth in North American oil, gas, and NGL production Industry installing significant infrastructure to move crude oil to refining markets - mainly to U.S. Gulf Coast Lower-cost U.S. and Canadian natural gas provides competitive advantage G
Slide 29: Appendix
AZ Pe VALERO Appendix
Slide 30: Valero's Ethanol Segment
Valero's Ethanol Segment Total nameplate production capacity of 1.1 billion gallons/year Built position for average of only 35% of estimated replacement cost 2Q09: Acquired 7 plants with 780 million gallons per year of world- scale capacity in advantaged locations 1Q10: Added 3 plants with 330 milli
Slide 31: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 31 (CHART) Source: Company Reports and EIA, yield data is for 2012; gasoline and distillate as a percent of total production volumes; distillate includes jet fuel; gasoline excludes naphtha Valero's refining system distillate yields are estimated to grow from 33%
Slide 32: Unlocked Value via Retail Spinoff
Unlocked Value via Retail Spinoff Spun off to stockholders our retail business on May 1 CST Brands, Inc. trading on the NYSE under the ticker symbol "CST" CST has traded at more than double the earnings valuation of VLO, unlocking shareholder value Valero received approximately $500 million in net c
Slide 33: Valero's Wholesale Business
Valero's Wholesale Business VLO markets branded and unbranded refined products on a wholesale basis through an extensive rack marketing network The Valero-branded family operates in the U.S., Canada, and U.K. with approximately 1,000 branded sites in the U.K. and Ireland These sites are independentl
Slide 34: Refining Crude & Feedstock Supply
(CHART) Refining Crude & Feedstock Supply 34 Valero crude and intermediate feedstock runs were approximately 2.3 million bpd in 2012 Valero ran 94 unique crudes in 2012 Crude and intermediate feedstock inventories typically range from 58 to 70 million barrels throughout the year We hedge all crude a
Slide 35: Valero's Growth in Processing Volumes of Cost-Advantaged U.S. and Canadian Crude
Valero's Growth in Processing Volumes of Cost-Advantaged U.S. and Canadian Crude 35 (CHART)
Slide 36: Valero Focused on Safety and Environmental Performance
Safety is our highest priority: our goal is zero injuries Tier 1 process safety events - significant focus to continue improving Environmental and regulatory compliance - even more important today (CHART) (CHART) *Source: U.S. Bureau of Labor Statistics (CHART) Valero Focused on Safety and Environme
Slide 37: Issues with Processing Light Crudes
Issues with Processing Light Crudes 37 Refineries are designed for a specific range of crude oil properties, otherwise build costs would be very high Lighter crudes contain significantly more light components, e.g., propane, butane, straight run gasoline, naphtha Be careful about generalizing crude
Slide 38: RINflation! - Expect Consumers to Pay Higher Cost of RFS Mandate
RINflation! - Expect Consumers to Pay Higher Cost of RFS Mandate 38 Situation RFS mandates a specific volume of renewable fuels to be blended with gasoline and diesel Due to lower annual gasoline demand, the mandated renewable volume exceeds the possible blended volume (E-10 and E-85), creating the
Slide 39: U.S. Oil and Natural Gas Production Increasing While Crude Oil Imports Decreasing
U.S. Oil and Natural Gas Production Increasing While Crude Oil Imports Decreasing While Crude Oil Imports Decreasing While Crude Oil Imports Decreasing 39 Source: DOE (CHART) Local resource provides cost-advantage of refiners
Slide 40: Logistics Constraints Create Regional Crude Discounts in U.S. and Canada
Logistics Constraints Create Regional Crude Discounts in U.S. and Canada 40 (CHART) Source: Argus; data as of September 6, 2013 C A G H B D F E I Crude Pricing by Location A B C D E F G H I Premium Discount
Slide 41: Canadian Heavy Crudes Have Several Options to the Gulf Coast
41 Source: Company Reports Canadian Heavy Crudes Have Several Options to the Gulf Coast Pipeline - industry has several options in various stages to move crude oil from Alberta, Canada to the U.S. Gulf Coast Seaway Currently shipping light and heavy sour from Cushing to Gulf Coast Expansion expected
Slide 42: Growth of Pipeline Crude Logistics to U.S. Gulf Coast
Growth of Pipeline Crude Logistics to U.S. Gulf Coast 42 Year-End Throughput Capacities, '000 bpd 2011 2012 2013E 2014E 2015E Announced Start-up Cushing Seaway 150 400 850 850 2Q12, 1Q13, 1Q14 Keystone - - 550 550 830 4Q13, 2015 Total - 150 950 1,400 1,680 Permian Longhorn 225 225 225 2Q at 75; 225
Slide 43: Atlantic Basin Closures Reduce Excess Capacity
(CHART) Atlantic Basin Closures Reduce Excess Capacity Capacity closures have been concentrated in the Atlantic Basin: U.S. East Coast, Caribbean, Western Europe; expect more will occur Combined with poor reliability and low utilization in Latin American refineries and demand growth in Latin America
Slide 44: Global Refining Capacity Rationalization
*Partial closure of refinery captured in capacity Note: This data represents refineries currently closed, ownership may choose to restart or sell listed refinery Sources: Industry and Consultant reports and Valero estimates Global Refining Capacity Rationalization 44 Location Owner CDU Capacity Clos
Slide 45: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 45 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland Phillips 66 70 Mazeikai, Lithuania PKN 190 Various Japanese Locations JX Energy 400 Incheon, South Kore
Slide 46: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 46 U.S. natural gas trading at a significant discount to Brent crude oil price (on energy equivalent basis) Expect U.S. natural gas prices will remain low and disconnected from global oil and gas prices for foreseeable future VLO refinery oper
Slide 47: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 47 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2013 data through September 6 Source: DOE weekly data; 2012 data through week ending August 30 Source: DOE weekly data; 2012 data through week ending August 30 U.S. Gasoline
Slide 48: Distillate Fundamentals
Distillate Fundamentals 48 48 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2013 data through September 6 Source: DOE weekly data; 2012 data through week ending August 30 Source: DOE weekly data; 2012 data through week ending August 30
Slide 49: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 49 (CHART) (CHART) Source: U.S. DOE PSM / U.S. DOT FHA Most recent data includes Jun 2013
Slide 50: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 50 (CHART) (CHART) (CHART) (CHART)
Slide 51: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data July 2013 Gasoline Gross Imports (MBPD) (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 51
Slide 52: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 52 (CHART) Source: EIA, June 2013
Slide 53: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Gasoline exports remain at elevated levels due to the demand from Latin America, including Mexico Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly wit
Slide 54: U.S. Gasoline Imports by Source
U.S. Gasoline Imports by Source Gasoline imports have declined steadily since 2007 Shutdown of the Atlantic Basin refineries will keep pressure on this trend 54 (CHART) MBPD 12 Month Moving Average Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and oth
Slide 55: U.S. Diesel Exports by Destination
U.S. Diesel Exports by Destination Diesel exports to Latin America continue to exceed exports to Europe, but over two- thirds of diesel export growth in 2011 was to Europe Source: DOE Petroleum Supply Monthly with data as of June 2013. 4 Week Average estimate from Weekly Petroleum Statistics Report
Slide 56: U.S. Shifted to Net Exporter
The transition of the U.S. refining system to being a net exporter to the world market has mitigated the impact of declining domestic demand Large quantities of U.S. diesel and gasoline exports to Latin America and diesel exports to Europe International demand has been "pulling" products Valero's sh
Slide 57: U.S. Shifted to Net Exporter
(CHART) U.S. Shifted to Net Exporter Net Imports Net Exports MBPD Diesel net exports remain strong, with U.S. refiners sending a net of 751 MBPD to other countries in 2013 (Jan-Jun). Gasoline net imports have fallen from almost 1MMBPD in 2006, to only 101MBPD in 2013 (Jan-Jun). Still, gasoline and b
Slide 58: U.S. Competitively Exporting into Growing Markets
(CHART) U.S. Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of June 2013, Latin America includes South and Central America plus Mexico U.S. has become a net exporter of refined products due to growth in developing countries, Atlantic Basin capacity clo
Slide 59: Crude Oil Discounts
(CHART) Crude Oil Discounts 59 $/barrel Source: Argus; 2013 year-to-date through September 6; LLS prices are roll adjusted
Slide 60: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 60 Source: Argus; 2013 year-to-date through September 6; see Appendix for details on refinery configuration assumptions
Slide 61: Assumed Regional Indicator Margins
Assumed Regional Indicator Margins Gulf Coast Indicator: (GC Colonial 85 CBOB A grade- LLS) x 60% + (GC ULSD 10ppm Colonial Pipeline prompt - LLS) x 40% + (LLS - Maya Formula Pricing) x 40% + (LLS - Mars Month 1) x 40% Mid-con Indicator: [(Group 3 Conv 87 Gasoline prompt - WTI Month 1) x 60% + (Grou
Slide 62: Ethanol Reconciliation of Operating Income to EBITDA
Ethanol Reconciliation of Operating Income to EBITDA EBITDA EBITDA 62
Slide 63: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: Ashley Smith, CFA, CPA Vice President, Investor Relations 210.345.2744 ashley.smith@valero.com Matthew Jackson Lead Investor Relations Specialist 210.345.2564 matthew.jackson@valero.com 63
Valero Energy — Barclays CEO Energy-Power Conference 2013 on 6ix